Greed is still good for Britain's elite

Last week, the extraordinarily overpaid CEOs of the Lloyds and HSBC banks showed thousands of lower-middle-class employees the door. Until recently, the received wisdom of several decades would have held the following truths about the dismissals they ordered to be self-evident.

Although the vast amounts banks paid to their senior managers and dealers struck many as obscene, few doubted that they had an economic justification. Bankers demanded no favours from the rest of society, but worked in a winner-takes-all world where the rewards for success were lavish and the reward for failure was the sack.

We had few reasons to worry about the dismissed clerks, middle managers and back-office staff. Their employers had dealt them a harsh blow, but they were not like the poor, who needed all the help society could give. They had skills and the work ethic. In the short or medium term, they would find alternative employment.

When they did, their living standards would rise each year, allowing them to buy a home, have children and find a secure place for themselves in a property-owning democracy.

Often, the hardest thing to see is what is staring you in the face. All of the above assumptions about Britain were once true but are now either false or debatable. Even on the left, people still believe that the most shocking fact about Britain is that "the rich are getting richer and the poor are getting poorer".

But although, incredibly, the rich are still getting richer, the widening gulf is between them and the broad mass of society.

Unfashionable though it is to say a good word about the last Labour government, Gordon Brown succeeded in halting the deteriorating position of the poor. Unfortunately, he also failed to check the recklessness of the City. Brown's legacy is a society where the poor have not done so badly, the rich have done very well and those in between are seeing a decline in their living standards without precedent since the Second World War.

The change in the fortunes of the type of people who once had reasonable jobs at Lloyds and HSBC is being chartered by an important group of thinkers at the new Resolution Foundation research institute. They make a pertinent and disturbing argument, which every discussion of class in Britain ought to take as its starting point.

The stagnation of working- and lower-middle-class living standards – that is of the 11 million people with household incomes between £12,000 and £30,000 if they are couples without children or between £19,200 and £48,500 if they are families with children – began in 2003, five years before the great crash of 2008.

Even if George Osborne succeeds in getting growth going again, it may not benefit ordinary people. For when Britain was booming, when the Brown bull market was roaring, the growth in gross domestic product benefited them not at all. Few observers noticed because millions of people sought to sustain their living standards by taking on debt. They could carry on with the mortgage and rent payments, the odd holiday and the treats for the children because they put themselves in hock to the banks.

In other words, average Britons have become like average Americans, whose living standards have not increased in real terms since 1975, despite GDP doubling and despite a succession of US presidents announcing that the interest of hard-working, law-abiding citizens was the cause dearest to their compassionate hearts. You can see the shabby, disappointed Britain that is emerging not in journalism or the arts but in the pessimism of the young.

Those of them who were good boys and girls, passed their exams and even went to university believe that they will never enjoy the lives their parents enjoyed unless they find a high-flying job. The reasons for their bad luck are controversial. Technological change that in postwar Britain created administrative and clerical and middle-class jobs is now wiping them out, sending them overseas or downgrading them.

Economists are small "c" conservatives generally and only a few talk about the collapse of trade unions as well as technological change. But for all their faults and stupidities trade unions at least provided a countervailing force to rapacious capital, which is now largely gone.

For all the dispute about causation, it remains certain that even if the workers at HSBC and Lloyds find comparable jobs, their living standards will still fall. The young among them will never be able to buy a home if they do not receive inherited wealth. The Resolution Foundation estimates that people on low to middle incomes would have to save 5% of their take-home pay for 47 years to obtain an average deposit for a first home.

Britain may once have been close to a property-owning democracy, but it is becoming a property-owning oligarchy.

The present government's way out is to order more of the same. The not so secret policy of the Bank of England and the Treasury is to treat the hangover left by a debt-fuelled binge with another debt-fuelled binge. They will let inflation rip and keep interest rates low to encourage borrowing and discourage saving. Last week, the Office for National Statistics announced that the policy was working and the savings ratio had fallen as people hit by rising inflation and falling real wages waved their credit cards once more.

Those who have no need to borrow are happier than anyone could have imagined they would have been in 2008. The banks have been bailed out. Their lobbyists have ensured that the public will have to bail them out again when their speculative gambles go awry.

Stuart Gulliver, the CEO at HSBC, saved £30m or so by getting rid of 700 workers. In 2010, Mr Gulliver pocketed £6.1m in salary and deferred bonuses.

When you point out to people in the City that the old market justifications for their salaries no longer make sense, and they are failures sustained by other people's money, they are astonished. "Look at my beautiful new house, my beautiful new car, my beautiful new wife, I'm not a loser." Indeed not.

The losers are the millions who had to subsidise them. For all the valid criticism of the current Labour leadership, surely there must be scope for an intelligent centre-left to take aim at the undeserving rich and turn anger against a calamitous and unrepentant elite into a movement for social change?

Sign up for the Guardian Today

Our editors' picks for the day's top news and commentary delivered to your inbox each morning.